CONCRETE STEPS

Mexico 2017 | DIPLOMACY | INTERVIEW

TBY talks to Alicia Bárcena, Executive Secretary of the UN Economic Commission for Latin America and the Caribbean (ECLAC), on Mexico's structural reforms in line with the 2030 Agenda and maintaining consistent growth.

 Alicia Bárcena
BIOGRAPHY
Alicia Bárcena assumed office as the Executive Secretary of ECLAC in July 2008. She had previously served as Under-Secretary-General for Management at the UN Headquarters in New York, Chef de Cabinet, and Deputy Chef de Cabinet to former Secretary-General Kofi Annan. She also held the post of Deputy Executive Secretary and Director of ECLAC’s Environment and Human Settlements Division. Prior to her time at ECLAC, she served as Coordinator of the Latin American and Caribbean Sustainable Development Programme of the UNDP and was the Founding Director of the non-governmental organization Earth Council in Costa Rica.

How would you rate the effectiveness of Mexico's major structural reforms as a tool to increase economic growth and reduce poverty?

The structural reforms represent an opportunity for the Mexican economy to reach economic growth rates above 2.5% and thus reduce poverty. A less dynamic economic scenario makes reforms even more necessary. One of the aims of the structural reforms is precisely to improve wages and increase employment, which will impact outmigration and generate opportunities for renewed dialog with the US administration. Greater efficiency, production, and formal employment that is well paid is key to strengthening domestic demand. The telecommunications sector reform has already contributed to the entry of new players and reduced tariffs. The financial reforms have led to an increase in credit and investment. The tax reform has succeeded in increasing public revenues, which is in line with the UN's focus on domestic resource mobilization for development. Avoiding a fiscal adjustment that slashes public investment or social expenditure is key. In that regard, we should focus on ending ineffective fiscal privileges and on strengthening the Tax Administration Service (SAT) to minimize tax avoidance. These structural reforms are a necessary step in that direction but are far from sufficient. The potential of the energy sector reform is enormous. It is a comprehensive reform that includes the electricity, gas, and renewable energy sectors. In terms of the oil sector, there are a variety of oil fields that even with oil prices at their lowest levels remain viable for exploitation. These reforms are consistent with the UN 2030 Agenda. However, there is a long way to go for Mexico to achieve greater economic growth, reduce poverty and inequality, and achieve greater well-being for all Mexicans.

GDP growth is expected to reach 3% in 2017. What factors have enabled Mexico to maintain this level of growth?

ECLAC estimates that in 2016 the Mexican economy will expand by 1.9%, which is below the 2.5% registered in 2015. Among the factors that directly affect this deceleration are the negative performance of the US manufacturing sector, which is highly linked to Mexican exports; international economic and financial instability; the decline in public revenues, mainly from oil; and public spending, which led to a slowdown in domestic consumption in the second half of the year. In 2017, ECLAC estimates economic growth of around 2.2%, as the slight improvement in external demand is expected to be offset by lower investment and public spending, due to lower public oil revenues. We must be attentive to the evolution of US economic policy measures and their impact on the Mexican economy, as the risks of an economic slowdown may materialize. To maintain sustained economic growth Mexico needs to strengthen its domestic market by improving its income distribution, raising the minimum wage, diversifying their exports, increasing the value added of their products, and increasing innovation and productivity.

What concrete steps can the country take to reduce economic inequality in line with Agenda 2030?

Reducing economic inequality in line with the 2030 Agenda requires a structural change in national policies to boost growth, such as a countercyclical macroeconomic policy, a selective fiscal adjustment to protect public and private investment and social policy, maintaining minimum wages, and the creation and implementation of industrial and technological policies for a strong environmental and productivity boost. In particular, it is necessary to boost investment, which has a positive impact on productivity. At this point, an active fiscal policy and the application of intelligent adjustments are important: deducing evasion/avoidance, which on average equals 6.3 points of regional GDP (USD320 billion); increasing tax collection and improving its efficiency to be more redistributive and progressive; keeping an eye on both the level of public expenditure and its composition, and avoiding excessive adjustments in public investment and social spending, which may affect those most vulnerable. Other policies targeted and specific policies are needed in the labor market. In addition, monetary policy must continue to stimulate domestic demand while also managing inflation, which has shown a downward trend.